“Similar headlines would have caused the dollar to fall more steeply against the yen before,” said Daisaku Ueno, chief foreign exchange strategist at Mitsubishi UFJ Morgan Stanley.

Despite the increase in risk aversion — which tends to trigger buying of the yen as a safe haven — the dollar didn’t fall too much against the Japanese currency.

“The dollar showed firmness after falling to some extent largely because of fundamental differences in monetary policy in the U.S. and Japan,” Ueno said.

Investors showed a muted reaction to economic data early in the session.

Japanese government data showed that the core consumer price index rose 1.3% in July from a year earlier, discounting a sales tax increase that took effect in April. That was in line with the average forecast made by economists polled by The Wall Street Journal.

Market participants and policy makers are keenly watching the CPI as they try to determine how far the Bank of Japan is from hitting its 2.0% inflation target — a key barometer of the success of Prime Minister Shinzo Abe’s economic policies.

Investors were reluctant to take new positions ahead of more forthcoming data, such as euro zone inflation and U.S. personal income and outlays. These readings could provide further evidence for what is becoming an increasingly clear gap between the fundamentals of the euro zone and the U.S.

“The direction is a higher dollar and a weaker euro,” said Osao Iizuka, head of FX trading at Sumitomo Mitsui Trust Bank. “But investors are unable to move until the release of the CPI.”

The WSJ Dollar Index
BUXX, -0.18%,
a measure of the dollar against a basket of major currencies, was up 0.05% at 74.60.

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